Services power growth

SHARE | Monday, 16 October 2017 | By Kabelo Adamson

The Ministry of Finance and Economic Development predicts that the economy will grow by 4.7 percent this year before registering another growth of 5.3 percent next year. According to the minister Kenneth Matambo, these growths are expected to be supported by the services sector, including hotels and restaurants and many other sectors like tourism. Speaking in an interview recently, economist at FNBB Moatlhodi Sebabole said they forecast a 3.8 percent growth rate for 2017 and 4.1 percent for 2018 compared to government figures which are a bit higher. “We believe that the growth will be supported by a recovery in commodity prices (particularly diamonds); resilience in the services sector; and continued stability in the supply of water and electricity,” he said. But on the other hand government projects that the mining sector will register a 0.5 percent growth this year and 9.3 percent next year. Sebabole said they remain cautiously optimistic, as the subdued private-sector employment prospects, a freeze in government headcount and high levels of indebtedness will continue to constrain growth in household consumption. He said the 3.8 percent and 4.1 percent growth almost matches exactly the country’s long-term historical average and incorporates the expected contribution of the government’s “Cut 9” diamond mining project, which aims to provide access to 91 million tonnes of ore containing about 110 million carats of precious stones between 2024 and 2033. With the NDP 11 having started in April this year and expected to provide the country’s economic development policy framework through to 2023, Sebabole said the economy is expected to average growth of 4.4 percent during that period. “Policy implementation has, however, been a challenge for Botswana in the past and the success of the country’s public-private-partnerships and economic diversification drive will rely heavily on favourable regulation and effective implementation of development projects – specifically those improving water and electricity supply,” he said.

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Finance, real estate and business services currently account for around 16.5% of GDP (2011: 14.7%), while wholesale and retail trade account for approximately 18% (2011: 16%). Sebabole said meaningful growth in these sectors would be a pre-condition for higher employment, wage increases and household consumption. “Although we expect fiscal revenue to be supported by slightly better diamond sales, spending is likely to slightly exceed revenue, as the government embarks on Phase 2 of the ESP. Despite the pressure this will put on public finances, we are encouraged by the fact that much of this spending will be dedicated to developmental investments in education, health, water and power sectors,” Sebabole said. The ministry is estimating total revenues and grants of P58.81 billion and proposed total expenditure and net lending of P66.87 billion for 2018/2019 which points to a deficit of P8.06 billion or minus 4.0 percent of the GDP. “Notwithstanding these potential tail winds, growth will continue to be constrained by persistently high unemployment, limited job creation, low wage increases and consequently, constrained household consumption expenditure,” explained Sebabole. Sebabole said an observation has been made regarding the services sectors which have accounted for over 5o percent of growth in the past decade. In 2017, he said, growth has been led by transport, finance and trade sectors at 5.9 percent, 5.6 percent and 2.4 percent respectively. “However, we note continued downside pressures on mining and manufacturing, which slowed 13.8% and 0.2%. During the reported period, the production pressures on base metals of copper negatively affected mining growth; this was exacerbated by some closures of diamond cutting and polishing companies,” he said.

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Sebabole said government services have remained flat but are expected to register some improvement in second year of the Economic Stimulus Programme (ESP) and roll-out of the NDP 11 despite an anticipated fiscal deficit in financial year 2019/2020. “The total final consumption improved by 6.3%, mostly led by a 7.6% improvement in household final consumption, whereas government final consumption improved by 3.7%. Fixed capital formation decreased by 15.4% due mainly to limited investments on infrastructure, while business confidence levels remain below 50%. “We note that the low inflation rate is benefitting consumption patterns; the consumer, however, is still facing compressed disposable income due to salary increases that are not adjusted for inflation,” he said. Research Manager at Motswedi Securities, Garry Juma, told this publication recently that the growth of the services sector will be good for the economy as it will provide for economic diversification. He said the good thing about the services sector is that unlike other sectors, it is labour intensive and therefore there is likely to be an increase in the number of employment opportunities created in the next coming years. Juma explained that the growth of the services sector is interrelated to the mining sector and if the mining sector improves it will push the services sector further. So if the mining sector increases, Juma said, there would be positive effects on hotels and restaurants and many others that depend on the mining sector. Trade, hotels and restaurants are projected to grow by 9.1 percent and 7.3 percent in 2017 and 2018 respectively with the transport and communications sector projected to grow by 6.2 percent and 6.7 percent in these two years according figures provided by the Ministry of Finance and Economic Development (MFED) under the leadership of Matambo.